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£5k to invest? Here are 3 reasons why I’d buy the Lloyds share price for my ISA today

If you have £5,000 to invest today, I highly recommend taking a closer look at the Lloyds Bank (LSE: LLOY) share price. If you’re looking for income and capital growth over the long term, I believe this blue-chip offers the perfect combination of both and, right now, the shares are on special offer.

So, without further ado, here’s the three reasons why I’d buy the Lloyds share price for my ISA today.

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Income growth

The great thing about ISAs is that any income or capital growth within these wrappers is tax-free. That makes them perfect for owning dividend shares like Lloyds.

At the time of writing, this stock supports a dividend yield of 5.7%, and the company has been issuing special dividends to investors over the past 12-months as well. I think this trend is likely to continue as the bank’s profits expand further.

At the beginning of 2019, management unveiled a £4bn distribution to investors, comprised of a regular and special dividend. There’s a good chance the bank could announce another special dividend when it reports its full-year results for 2019 at the beginning of next year.

With the distribution covered 2.3 times by earnings per share, there’s undoubtedly plenty of headroom from management to pay out more cash, even though Brexit might weigh on profitability in the short term.

Lloyds is one of the largest banks in the UK, and is the country’s largest mortgage lender. This tells me that, over the long term, the only way for profits should be up, as more and more people move onto the housing ladder, and the country’s economy grows.

Lloyds’ bottom line should also benefit from the end of the PPI scandal, which has cost UK banks £50bn.

Earnings growth

As noted above, I think the long term outlook for Lloyds’ profitability is bright. Not only should the bank’s bottom line benefit from the end of PPI, but the lender’s costs are also falling, thanks to modernisation efforts such as the switch to a new IT platform, which kicked off last year.

All in all, City analysts are forecasting earnings growth of 20% for 2019, and while this kind of growth is unlikely to be repeated in the years ahead, I think it clearly shows the bank’s potential when it’s operating at full speed.

Undervalued

The final reason why I’d buy the Lloyds share price for my ISA today is its current valuation. At the time of writing, shares in the bank are dealing at a forward P/E of just 7.7, that’s around half of its five-year average.

On top of this, the stock is trading below book value. Technically, a stock deserves to trade below book value if it’s losing money for shareholders. But with a net profit of £5.4bn forecast for 2019, that’s clearly not the case here.

These numbers suggest when the Brexit cloud of uncertainty is lifted, shares in the lender could jump substantially from current levels.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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